Small businesses doing it tough amid uncertainty

Business conditions for small firms sagged in the three months to June as a result of higher interest rates, weak consumer demand and higher labour costs.

An Australian Chamber of Commerce and Industry survey of 1500 small firms found business conditions fell 2.7 points in the June quarter to 47.4, well below the index’s five-year average.

Small firms were also less optimistic about the outlook for the next 12 months; the survey’s economic expectations component fell 4 points to 53 in the period.

The results are at odds with the broader economy, which is healthy. Unemployment is low and economic growth is robust, helped by government spending.

ACCI director of economics and industry policy Greg Evans said conditions for small businesses had “shifted downwards amidst increasing uncertainty about the strength of global recovery and the official interest rate hikes during the quarter".

“Continued weakness in sales and selling prices, coupled with the rising cost of labour and finance, has put significant downward pressure on small business profitability and limiting small business expansion and investment," Mr Evans said.

Council of Small Business Organisations of Australia executive director
Peter Strong
said a “failure of government policy" had added to pressure at many small firms.

Mr Strong said the government’s labour award modernisation process was confusing small firms and increasing compliance costs, making it tougher for them to compete with larger businesses. “You need a proton accelerator to work it out," he said.

Related Quotes

Company Profile

The survey shows small business turnover also fell in the June quarter, down two points to 47.5, while profits softened from 42.4 to 41.3, and investment dipped 0.5 points lower, to 43.9. Wage growth at small firms surged three points to 62.4; a two-year high.

The soft numbers follow National Australia Bank’s quarterly survey of business confidence among small and medium-sized businesses last week. It showed a sharp fall in confidence in the June quarter, and the weakest quarterly result since 2009.

Commonwealth Bank of Australia chief economist Michael Blythe said for small firms, hiring and investment would be dictated through the rest of the year by perceptions about the health of the global economy. “Small businesses may well think ‘shall I buy that new laptop or should I put it off for a few months to see how things are going’," Mr Blythe said.

NSW Business Chamber chief executive Stephen Cartwright said small businesses were in “choppy financial waters".

Mr Cartwright said: “Sales in the coming quarter are expected to increase yet profits are expected to fall, so we are seeing small business experiencing tighter margins on sales."

Micro and Home Business Association president Kevin Jeffrey said the federal election campaign had also dented trade.

“We’ve got an election on so the government isn’t spending money, and it’s also dampening consumer spend," he said.